Once per year, Macquarie does a secret shopper exercise to gauge credit availability. This year it found that mortgage availability had tightened by around 5% following 11-18% for owner occupiers in 2016/17 and 15-31% for investors:
Our findings somewhat contradict the notion that lenders substantially lowered their maximum lending capacities over the course of the last six months. We found that while banks and brokers appear to be spending significantly more time in getting additional information and responding to exceptions in the application forms, rejection rates remained low and broadly consistent with prior years.”
Ultimately, we expect a combination of weaker house prices; a reduced proportion of interest-only loans; and a further but gradual tightening of credit standards to result in credit growth slowing towards our forecast of ~2% by 2020.
However, our current findings, in our view, alleviate the risk of a credit crunch which would potentially result in a significant economic downturn scenario which would adversely affect banks.
…Some lenders (i.e. Pepper) appear to have maintained more aggressive lending policies and were prepared to lend ~$700k.
These pricing trends suggest that lenders are competing aggressively for new business, which is generally not consistent with signs of credit rationing.
WBC’s IO loan proportion appears to be an outlier across the majors, driven by its overweight position in investor loans and an older and wealthier customer demographic. Conversely, ANZ and NAB appear the most underweight.
The year is only half over so another 5% tightening seems material to me. And we are yet to get the direct fallout form the royal commission or impact from new APRA leverage rules, not to mention rate hikes from the majors owing BBSW. As UBS argues today, the tightening is likely only one third through. If that’s the case then the ultimate impact will be a crunch.
Deloitte joins the debate as well:
Deloitte’s annual mortgage report warned of a drop in investor and interest-only loans because of tighter credit standards but said there was more likely to be a period of moderation in housing prices than a crash, given underlying demand for property was solid.
“It is already appearing as if 2018 will be the second consecutive year since 2012 that settlement volumes either flatten off or reduce. When placed into perspective, the strong lending growth of the 2013 to 2016 period was never going to be sustainable in the long term,” Deloitte financial services partner James Hickey said.
“The market recognises the need to take stock and find a new sustainable base for the long term. In addition, there is uncertainty around possible new rules and legislative change as a result of the banking royal commission.”
While consumers were eyeing a crackdown as a result of the banking royal commission, it might take some time for changes in conduct and consumer interest to work their way into any regulation, Mr Hickey said.
There’s no doubt a material tightening is underway. It’s appearing in the data and the anecdotal evidence is overwhelming. The question now is duration and severity.
